Fraudulent conspiracy

Fraudulent conspiracy

Disciplinary: FD excluded after becoming embroiled in falsified contracts scheme

A finance director has been excluded from the ICAEW after he engaged in a fraudulent scheme to borrow money against falsified contracts to the tune of £160m.

C, who was the FD of a company that laid fibre optic cables through sewers, was found guilty at Southwark Crown Court in 2017 of two counts of conspiracy to commit fraud by false representation and sentenced to 10 years imprisonment.

Since C was convicted, the ICAEW disciplinary tribunal had no other choice but to exclude the Chester-based finance director, but didn’t assign any additional financial penalties. Although the Investigation Committee sought costs of £6000, the tribunal, taking into account the respondent’s financial circumstances, decided to make no order.

The disciplinary tribunal heard how C’s company was struggling over finance and that then morphed into a byzantine scheme which included bribery and contract tampering.

It started when C’s company needed funding. But soon after securing the money, he became aware of the ease of securing funds through false representations.

Initially, the company received funds in exchange for assigning a contract to ‘D ltd’ for the entitlement to the rental income from the customer.

It didn’t take long for the owner of D ltd to realise that he could alter the figures on the original contract by increasing the annual rentals of £10,000 to £100,000 or more.

C maintained that he didn’t know how much his company was being paid in fraudulent contracts. However, Judge Gledhill asserted that he “could not have failed to see how much money was being paid to [his company] on the altered and fictitious contracts”.

The court also heard how C worked “hand in glove” with his co-fraudsters by creating and signing documents used to defraud the banks, although the Judge accepted that on a number of occasions his signature had been forged.

In a letter to the ICAEW Investigation Committee, C claimed that all the money his company received was properly accounted for and blamed the fraud on D ltd.

However, Judge Gledhill said that C was motivated by the huge amount of money he would have made as a shareholder if the scheme was successful and led to large profits.

The court did recognise though that C didn’t end up receiving any cash benefit from the fraud. His eventual reward was his salary and bonuses totalling £267,000 gross over the three tax years – in stark contrast to the sizable amount pilfered by his co-defendants.

C told the ICAEW tribunal that the Judge’s sentencing remarks painted a worse picture than was actually the case. In fact, he claims that what he did to secure finance was what would be expected of any “diligent finance director”. He said he was recommended to D ltd through his bank and that D ltd was the one who orchestrated the fraud.

C was also given a confiscation order for the £267,000 – he now has £77,000 left to pay. However, that may be waived.

The ICAEW recognised his good character and the fact he now performs a role similar to that of the Samaritans in prison. But despite his clean disciplinary record, the ICAEW disciplinary tribunal had no option but exclusion due to the conviction.

Chris Cope comments:

Although the respondent protested his innocence, the tribunal could not go behind the conviction. The respondent had also sought permission to appeal, but had been refused.

The respondent was represented by two members of the ICAEW who were familiar with the facts of the case. They needed the permission of the tribunal to represent the respondent. Although their application was opposed by the Investigation Committee (we are not told why), the application was granted.

The respondent was banned by the court from acting as a company director for ten years. Why not the maximum of 15?

Qualified directors

Accountant severely reprimanded over unqualified audits

An accountant has received a severe reprimand by the ICAEW and will have to pay costs of £18,518 over various incorrect and unqualified audits over three years.

As auditor to an FCA-regulated money holder (company ‘A’), B failed to apply relevant audit standards and to obtain evidence that would have shown that the monies the audited company was holding were being misused.

In a previous consent order, B’s firm had already been ordered to pay a fine of £125,000 which the tribunal considered included responsibility for his conduct.

B failed to report the non-compliance with CASS rules to the FCA, and signed off accounts without establishing the company wasn’t able to continue as a going concern. When the FCA found a £3.1m hole in client account, it placed company A into administration and the audit oversights became apparent.

The audited company, which had been experiencing trading difficulties, had dipped into client funds to meet its other business requirements. The company had been allegedly insolvent from 2009 and was only able to operate from that date by using client money in breach of CASS rules.

Company ‘A’ Limited had sunk into trouble with various breaches, including failing to ensure that shortfalls arising from its internal reconciliations were paid into a client bank account by the close of business on the day the reconciliation was performed.

B failed to give a true and fair view in the audit of the company over three financial years (2009-11). The client’s cash and bank balances were understated and the bank overdraft and the client money the company was holding were overstated.

B didn’t comply with auditing standards by failing to obtain evidence on the recoverability of debtors, cash and bank balances and/or bank loans and overdrafts in the preparation of the financial statements.

Chris Cope comments:

I need to declare an interest as I represented B before the tribunal.

Points raised in mitigation and accepted by the tribunal were:-

  • The most recent matter occurred nine years ago.
  • There was no suggestion that the respondent had lacked integrity or had been motivated by personal gain.
  • References indicated that the respondent had carried out audit work to a satisfactory standard over the last nine years.
  • The respondent had shown insight and had learnt lessons.
  • It was not unreasonable for the respondent to have placed reliance on assurances given to him by the client company’s two directors, both of whom had been chartered accountants.
  • There was no requirement for a fine as one had been imposed on the firm, of which the respondent was no longer a partner.

I should also mention that the two chartered accountant directors were both subsequently disqualified under the Company Directors’ Disqualification Act and disciplined by the ICAEW. The respondent was also ably assisted by leading City of London accountants in the preparation of his lengthy witness statement.

Finally, all members in practice should be aware that in the unfortunate event that they find themselves in a similar situation to that of the respondent (namely subject to disciplinary proceedings for whatever reason), one of the benefits of membership of Accountants’ Defence & Advisory Services Ltd is that we underwrite professional fees up to £25,000 (visit our website at www.accountantsdefence.co.uk).

 

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